Company Announcements

16 December 2021

COUNTRYSIDE PROPERTIES PLC (THE "COMPANY")

ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 AND NOTICE OF

 ANNUAL GENERAL MEETING 2022

The following documents have today been posted or otherwise made available to shareholders:

·      Annual Report 2021

·      Notice of Annual General Meeting

·      Proxy Form

In accordance with Listing Rule 9.6.1R, a copy of each of these documents will be uploaded to the National Storage Mechanism and will be available for viewing shortly at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The above documents may also be viewed online at investors.countrysideproperties.com/shareholder-information/meetings-and-voting.

A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in the Company's Preliminary Results Announcement on 30 November 2021.  That information together with the information set out below, which is extracted from the Annual Report 2021, constitute the material required by Disclosure Guidance and Transparency Rule 6.3.5R which is required to be communicated to the media in full unedited text through a Regulatory Information Service.  This announcement is not a substitute for reading the full Annual Report 2021.  Page and note references in the text below refer to page numbers in the Annual Report 2021.  To view the preliminary announcement, slides of the results presentation and the webcast please visit investors.countrysideproperties.com/results-and- news/results-reports-and-presentations.

Enquiries:  Tel: +44 (0) 1277 260 000      

Iain McPherson - Group Chief Executive

Victoria Prior - Managing Director, Corporate Affairs

OUR APPROACH TO RISK

Given the cyclical nature of the UK housing market and the changing political, regulatory and legislative conditions, risk identification, assessment and management are built into every aspect of Countryside's operations.

How we manage risk

The Board has ultimate responsibility for risk management within Countryside and determines the Group's overall risk profile and appetite for risk in achieving its strategy for long term value creation.  This includes an assessment of the Group's principal and emerging risks.  The Board completed its annual assessment of risks at its meeting on 4 October 2021, the results of which are set out on pages 40 to 44.

The Audit Committee supports the Board in the management of risk and reports to the Board on its assessment of the effectiveness of the Group's risk management and internal control processes during the year.  This includes approval of the Group's internal audit assurance programme and monitoring the effectiveness of the external auditors. 

The day-to-day management of risk is delegated to the Risk Management Committee ("RMC") which provides a focal point for the co-ordination of the Group's risk management efforts.  It meets at least three times a year and its membership comprises all members of the Executive Committee and the Director of Audit and Risk Assurance.

The RMC is chaired by the Group Chief Executive.

The standing business of the RMC includes reviewing:

·      the Group risk register, mitigation plans and internal controls;

·      for each risk, the assessment of gross and net risk versus risk appetite, risk progression and adequacy of mitigating actions;

·      emerging risks, material changes in risk and risks identified by regional management teams;

·      the internal audit plan, reports and progress against recommendations;

·      key developments from the Sustainability Committee;

·      the management of claims and litigation;

·      reports of whistleblowing and fraud;

·      the forecast impact of and preparation for proposed and new legislation;

·      key policies and risk mitigation documentation (e.g. start on site or land acquisition checklists); and

·      total cost of risk against insurance and bond requirements.

At regular RMC meetings, a different "principal risk" or "emerging risk" is reviewed in depth.  A description of the key areas of risk considered during 2021 is set out on the following pages.

The management boards of each regional business review operational risks and in turn report to the RMC.  The introduction of regional risk registers and the process of standardised reporting up to the Group's RMC has contributed to a better overall awareness of risk and implementation of mitigating actions. 

The Group's risk register is maintained to record all risks and uncertainties identified in each part of the business.  For each risk, the most appropriate member of the Executive Committee is allocated as the "risk owner".  The risk owners call upon the appropriate expertise to conduct an analysis of each risk, according to a defined set of assessment criteria which includes:

·      How does the risk relate to the Group's business model and/or strategy?

·      What is the likelihood of the risk occurring?

·      What is the potential impact were the risk to occur?

·      Would the consequences be short, medium or long term?

·      What mitigating actions are available and which are cost effective?

·      What is the degree of residual risk and is it within the level of risk that the Group is prepared to accept in pursuit of its objectives (risk appetite)?

·      Has the risk assessment changed and what is expected to change going forward?

The risk assessments made are scored against a "risk scoring matrix" that grades the likelihood of occurrence and impact based on a range of types of impact (such as reputational, financial, operational and environmental) to improve consistency.  The results are reviewed by the RMC, which compares them to the Group's appetite for each risk, reviews the current level of preparedness and determines whether further actions or resource are required.  In reviewing and agreeing the mitigating actions, the RMC considers the impact of risks individually and in combination, in both the short and longer term.

Risk identification and management are built into every aspect of Countryside's daily operations, ranging from the appraisal of new sites, assessment of the prospects of planning success, building safely and selling effectively to achieving long-term success through the property market cycle.  Risk management is built into standardised processes for each part of the business at every stage of the housebuilding process.  Financial risk is managed centrally through maintenance of a strong balance sheet, forward selling new homes and the careful allocation of funds to the right projects, at the right time and in the right locations.  Risk management also includes the internal controls described within the Corporate Governance Report on pages 85 and 86.

Our risk management framework

The Board - Role and responsibilities

·      Sets the Group strategy

·      Determines the Group's risk policy, overall appetite for risk and the procedures that are put in place

·      Monitors the Group's principal and emerging risks

·      Assesses the progression of principal risks in comparison to the agreed appetite for each risk

·      Reviews the effectiveness of the Group's risk management and internal control procedures

Audit Committee - Role and responsibilities

·      Has delegated responsibility from the Board to oversee risk management and internal financial controls

·      Monitors the integrity of the Group's financial reporting process

·      Monitors the effectiveness of the Internal Audit function and the independence of the external audit

Internal Audit - Role and responsibilities

·      Undertakes independent reviews of the effectiveness of internal control procedures

·      Reports on the effectiveness of management actions

·      Provides assurance to the Audit Committee

Risk Management Committee - Role and responsibilities

·      Manages the Group's risk register and assessment of net risk versus risk appetite

·      Determines the appropriate controls for the timely identification and management of risk

·      Monitors the effective implementation of action plans

·      Assesses the Group's emerging risks

·      Reviews reports from the Sustainability Committee

·      Reviews reports from the Internal Audit function

·      Reviews principal claims and litigations

·      Reviews the annual renewal of the Group's insurance cover

·      Receives reports from the Sustainability Committee

Executive Committee - Role and responsibilities

·      Responsible for the identification of operational and strategic risks

·      Responsible for the ownership and control of specific risks

·      Responsible for establishing and managing the implementation of appropriate action plans

Key areas of focus during 2021

Covid-19

Whilst Countryside has followed all Government restrictions for the duration of the pandemic, all of the Group's sales offices re-opened on 1 June 2020 and a phased re-opening of offices progressed until the full re-opening of all offices from 6 September 2021.  Whilst this is a positive step forward in the journey back to more normal times, we remain cautious.  The "Smart Working" guidelines, described in greater detail on page 64, have been rolled out to promote a more flexible approach to work longer term.  The guidelines reflect the lessons learnt during the pandemic and the Government lockdowns and the feedback received from employees.  They are one part of the various ways we have adapted our business model to take into account the fact that life has to a degree changed.  Other measures include an increased online presence for both new and existing customers for matters such as customer visits by video conference, as well as a number of virtual home tours.   

Supply chain resilience

Maintaining strong and stable relationships with key suppliers has, more than ever, been critical during 2021 and the ongoing Covid-19 pandemic.  Combined with the impact of Brexit (following cessation of the transition period from 31 December 2020) and a series of events such as the Suez Canal blockage and a shortage of HGV drivers, there have been major challenges in maintaining the required supply of materials and personnel.  A global shortage of construction materials has also contributed to longer lead times and increased prices.  The combined impact of these factors has pressured many manufacturers to place key materials on allocation, due to a lack of stock and ongoing production capacity issues.  In mitigation, the Company's Group Buying team has carried out in-depth negotiations where increases were originally imposed, requiring fair compromises on both sides, leading to reasonable controls on price increases and improved security of the volumes required to meet our build programme.

The Board has always recognised the critical importance of maintaining strong relations with the Group's suppliers to underpin its operations and especially so during the challenges of the last 18 months.  All steps were taken to support existing suppliers through dialogue, improved transparency of future requirements, maintenance of commercial terms and a focus on sub-contractor safety.  As the year has progressed, we have seen certain product shortages and cost increases start to ease and would expect this to continue as we move into 2022.

Innovation and development of the Group's modern methods of construction ("MMC")

Countryside has invested significantly to develop its MMC capability, given the consequent benefits of reduction in on-site labour, better control of costs and improved efficiency and security of supply.  But a greater reliance of MMC product both potentially increases certain existing risks and introduces new risks that the Committee has spent considerable time reviewing and addressing during FY21.

A principal consideration has been how to minimise the risk of a break in supply due to production capacity problems (including from machinery failure, poor weather, labour shortages or other business continuity risks).  The key mitigating strategy has been to decouple supply from demand and to create a buffer of product that can continue to be delivered irrespective of the majority of risks that might emerge in terms of product capability.  The addition of the Group's new Bardon factory, which commences production from quarter 1 in FY22, further enhances this strategy.  The "decoupling" helps to create sufficient headroom to accommodate both minor repairs and planned maintenance activities that will typically be carried out by the factories' direct employees.  Service contracts are in place for ongoing manufacturing support and the most recent factory at Bardon, the machinery is also "real-time" connected via data links back to the original equipment manufacturer.

The factories have also developed a bespoke supply chain strategy to suit manufacturing operations that is purposefully focused on surety of supply and the reduction/elimination of risks associated with having to use substitute (equivalent or approved) products/materials/components.

Climate change

Failure to adequately prepare for the impacts of climate change has, for the first time, become a principal risk for the Group.

There is a marked increase in climate change responsive Government policies and regulations.  A significant proportion of these legislative changes is targeted at reducing greenhouse gas emissions of the built environment, such as through tightening building regulations.  A number of local authorities have additionally declared climate emergencies requiring them to embed climate action in their decision making and climate change mitigation and adaption requirements are weighted heavily by Homes England.  Investors too have increased the levels of climate change performance reporting that they require.

During FY21, considerable time has been devoted to consideration of the impacts of climate change on our business, recognising that ongoing analysis is essential to inform our medium to long-term decision making.

MANAGING RISK EFFECTIVELY

Board, Audit Committee and Risk Management Committee responsibility

The Board reviewed the Group's risk register and the assessment of the Group's principal and emerging risks, most recently at its meeting on 4 October 2021.

The Audit Committee has considered the effectiveness of the Group's systems and has taken this into account in preparing the Viability Statement on the previous page.

The Audit Committee reported on its findings at the Board's 4 October 2021 meeting, in order to support it in making its confirmation that it had carried out a robust assessment of the principal and emerging risks.

Principal risks and uncertainties

The Group's principal risks are monitored by the Risk Management Committee, the Audit Committee and the Board.  The table below sets out the Board's assessment of the principal and emerging risks, including those that would threaten its business model, future performance, solvency or liquidity.   This year, the following new principal risks have been added: climate change, poor operational performance and failure to generate or access adequate capital.

Emerging Risks

The Risk Management Committee regularly undertakes an assessment of emerging risks and, where identified, agrees steps to monitor the likelihood of the risk developing further and its potential quantum.  The results are reported to the Audit Committee and in turn the Board.

RELATED PARTY TRANSACTIONS

Transactions with joint ventures and associate

Sales of goods and services to related parties related principally to the provision of services to the joint ventures and associate at contractually agreed prices.  No purchases were made by the Group from its joint ventures or associate.  The amounts outstanding ordinarily bear no interest and will be settled in cash.

Remuneration of key management personnel

Key management personnel are deemed to be the Executive Committee, along with other Directors of the Company, including the Non-Executive Directors.

Included within the above is £2.1m (2020: £2.1m) relating to the Board of Directors, including £1.3m (2020: £0.6m) relating to the highest paid Director.  Refer to the Annual Report on Remuneration on pages 107 to 119 for further detail.

The disclosures on shares granted under the long term incentive schemes are included in Note 28.

Transactions with key management personnel

As at the reporting date, two of the Group's employees have a close family member on the Executive Committee.  These individuals were recruited through the normal interview process and are employed at salaries commensurate with their experience and roles.  The combined annual salary and benefits of these individuals is less than £60,000 (2020: three individuals, less than £190,000).

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year.  Under that law the Directors have prepared the Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law).  Additionally, the Financial Conduct Authority's Disclosure Guidance and Transparency Rules require the Directors to prepare the Group financial statements in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group for that period.  In preparing the financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and the internal financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the parent company financial statements, subject to any material departures disclosed and explained in the financial statements;

·      make judgements and accounting estimates that are reasonable and prudent; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business.

The Directors are responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the parent company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and parent company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Board of Directors section, confirm that, to the best of their knowledge:

·      the Group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

·      the parent company financial statements, which have been prepared in accordance with United Kingdom United Kingdom Accounting Standards, comprising FRS 102, give a true and fair view of the assets, liabilities and financial position of the parent company; and

·      the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces.